Problem
Mallory Lapp Jewelry, Inc., purchases diamonds from a large manufacturer and sells them at the retail level. The diamonds cost, on the average, $1,500 each from the manufacturer. Mallory Lapp Jewelry, Inc., sells the diamonds to its customers at an average price of $3,000 each. The selling and administrative costs that the company incurs in a typical month are presented below:
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Costs
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Cost Formula
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Selling:
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Advertising
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$964 per month
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Sales salaries and commissions
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$4,820 per month, plus 3% of sales
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Delivery of diamonds to customers
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$58 per piano sold
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Utilities
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$664 per month
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Depreciation of sales facilities
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$4,900 per month
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Administrative:
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Executive salaries
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$13,494 per month
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Insurance
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$696 per month
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Clerical
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$2,496 per month, plus $44 per piano sold
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Depreciation of office equipment
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$879 per month
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During August, Mallory Lapp Jewelry, Inc., sold and delivered 59 diamonds.
Required:
1. Prepare an income statement for Mallory Lapp Jewelry, Inc., for August. Use the traditional format, with costs organized by function. (A "Net operating loss" should be entered as a negative number.)
2. Prepare an income statement for Mallory Lapp Jewelry, Inc., for August, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.